This dissertation consists of two chapters, at the first chapter we analyze the rational expectation equilibria of a delegated portfolio model in which two risky assets have completely independent returns and liquidity shocks. The investment decision is delegated to risk neutral managers with reputational concerns. Some managers have perfect information on the assets' returns while others are uninformed and try to infer information from the prices. We show that in equilibrium there are always realizations of the shocks such that the returns are not revealed. In this region, the prices of the two assets exhibit a strong form of co-movement, as they must be identical. This occurs despite the fact that the two assets have different ex ante probabilities of repayment.
In the second chapter, we discuss price co-movements between fundamentally independent financial markets populated by risk neutral global funds and specialized funds. Similar to the first chapter, the investment decisions are delegated to risk neutral fund managers who are informed or uninformed of the state of the markets and have reputational concerns. Different from chapter one, these managers can be hired by three types of funds, specialized in one asset market or global. We show that in any equilibrium of the model, prices of the risky assets co-move with each other following any shock to ex-ante probabilities of default. The mechanism that generates this co-movement relies on two sources: the information asymmetry between fund managers and the reputational concerns of uninformed fund managers facing the threat of dismissal. The reputational channel reinforces the co-movement but it is not necessary to generate it. Information asymmetry induces co-movement even in the absence of reputational concerns.
|Commitee:||Bisin, Alberto, Dubey, Pradeep, Tauman, Yair|
|School:||State University of New York at Stony Brook|
|School Location:||United States -- New York|
|Source:||DAI-A 77/02(E), Dissertation Abstracts International|
|Keywords:||Investment funds, Price co-movements|
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